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Title [REVIEW]The Executive Director of a UN Agency on Running It Like a Business
Date 2019.04.22 Hit 166
Link 1 https://hbr.org/2019/05/the-executive-director-of-a-un-agency-on-running-it-like-a-business

 on Running It Like a Business

From the May–June 2019 Issue


Woman in office Alastair Philip Wiper

In June 2018 I was awoken at my home in Norway long after midnight by a call from a top official at United Nations headquarters, in New York. The Mexican ambassador to the UN had submitted a formal complaint about the United Nations Office for Project Services (UNOPS), the organization I lead, alleging that UNOPS had officially sided with the opposition candidate in Mexico’s upcoming presidential election. The complaint was ridiculous: All we’d done was say yes to the candidate when he asked if we would assist him with an anti-corruption campaign if he was elected. Nonetheless, the formal complaint created a press frenzy in Mexico. We had two options: apologize profusely, or declare we’d done nothing wrong. It was a sensitive decision, because our reputation was at risk, especially if the opposition candidate lost. We decided to stand firm. The UN secretary-general issued a statement reaffirming the UN’s impartiality. A month later the opposition candidate, Andrés Manuel López Obrador, was elected president—and soon after his inauguration he asked UNOPS to help sell Mexico’s presidential airplane, to set an example of government frugality.

Leading UNOPS, which I’ve done since 2014, requires a daily walk across a political tightrope. But I try not to let politics distract me from my primary goal: helping the agency continue to become a self-funded, sustainable, and entrepreneurial arm of the United Nations—staying true to our original mission even as we diversify to serve a wide array of clients and take on projects unlike what most people envision for an NGO like ours. Not long ago the organization teetered near bankruptcy; today it’s growing smartly. What we’ve accomplished can be instructive. It’s easy to name dozens of successful turnarounds in the private sector; it’s much harder to think of nonprofit examples. UNOPS has been able to change dramatically, creating a culture of discipline and a measured approach to risk-taking.

Conflicted Interests

UNOPS has an unusual history. Until the mid-1990s it was a project-execution department within the United Nations Development Programme (UNDP), which is comparable to other large UN agencies such as the International Children’s Emergency Fund (UNICEF) and the World Food Programme. UNOPS always charged other members of the UN family to cover the costs of projects—building infrastructure, for example—but as it grew, so did a seed of doubt. Critics said it was a conflict of interest that the UNDP made policy decisions and then charged member states to take actions accordingly through its de facto subsidiary, UNOPS. Boutros Boutros-Ghali, then the secretary-general, wanted more transparency around funding decisions and clearer incentives for agencies to work together.

So a group of UN officials proposed forming a new, self-financed organization, independent of political and funding decisions, which would implement projects on the ground at the country level. The hope was that this would address the conflict-of-interest problem—and that moving away from the UN bureaucracy would also make the organization more efficient. With support from Boutros-Ghali and the UN member states, UNOPS was spun off as an independent entity in 1995. It began bidding for work on infrastructure, project management, and procurement for the UN and other public-sector entities, as an outside contractor would do.

For much of its first decade, UNOPS was on a slow slide toward bankruptcy. It didn’t have enough experience to deliver on assignments efficiently, with the necessary quality, at the right cost. It didn’t know how to set prices correctly, so it lost money on too many projects. Its reputation for being willing to take on any assignment meant that UNOPS ended up doing work other organizations declined to do. Some people called it the Eleventh-Hour Agency, because it was where people went when they’d tried to do something themselves, determined that it was too hard or too risky, and wanted to outsource it as a last resort.

My predecessor as executive director, Jan Mattsson of Sweden, faced a make-or-break decision in June 2006. He and his deputy, Vitaly Vanshelboim of Ukraine, were given six months to either create a plan to radically transform the organization or shut it down. They chose to implement a turnaround. They began championing the concept of excellence and trying to benchmark UNOPS not just against its peers in the public sector but against the best of the private sector. They cut waste and duplication and persuaded existing and potential clients that relying on UNOPS’s ability to deliver in tough circumstances was worth their while. From 2006 to 2014 the organization attained a very solid financial footing and made major strides in improving its reputation, even as it remained largely unknown to the outside world.

Making Tough Choices

When I arrived, in August 2014, my goal was to take this approach to the next level. My experience in the private sector and in government had prepared me for such a high-pressure assignment. Early in my career I spent 10 years doing development work, first as a young legal adviser at the Norwegian Agency for Development Cooperation (Norad), and later as chair of Norwegian People’s Aid (NPA). In both positions I encountered resistance to the intermingling of private-sector, for-profit approaches with the not-for-profit aims of development agencies, foreshadowing some of the opposition I’ve faced at UNOPS.

Next I spent five years as the director of legal and corporate affairs in Western Europe at Microsoft, where I learned how a world-class tech company manages complex projects and develops strategies to grow. Before joining UNOPS, I spent a decade working in the Norwegian government, serving three prime ministers and leading ministries five times—international development, justice and public security, oil and energy, defense, and justice and public security again.

In some ways the job that best prepared me to lead UNOPS was as Norway’s defense minister. I was required to take trips to countries such as Afghanistan, Chad, and South Sudan—some of the world’s most challenging and dangerous places. One thing struck me when I visited: I always saw people from UNOPS. They were low-key about their work, but it was obvious that there was no place they wouldn’t go and no challenge they wouldn’t consider taking on. Their dedication to UNOPS’s mission was clear. When a recruiter called about the executive director’s job, I decided I wanted to take it.

In my first weeks there I realized I would need to make significant changes. Because of the perceived success of the organization’s initial recovery phase, complacency had started to creep in. Some colleagues, including a few senior managers, were convinced of UNOPS’s invincibility and their personal infallibility. When I began talking about taking a fresh look at how we worked, they quietly attempted to undermine my efforts. I didn’t allow that situation to fester; some of those people, who were widely perceived as “untouchable” because of their roles and levels, had to leave the organization. I identified employees who knew how to take smart risks and promoted them quickly, even if they lacked the experience ordinarily required to serve in a senior role. At the same time, I avoided the temptation to change out the entire senior team, as some observers urged me to do. I strongly believe in surrounding myself with people who complement my strengths and help me manage around my weaknesses.

We also needed to improve the way we accounted for costs and set prices. Before I arrived, the organization had been using a simplified method: estimate overall costs and add 7% as a management fee. Cost-plus pricing is commonly used in government contracting, but as UNOPS began operating more like a private company, it needed more-sophisticated pricing tools. Some projects are riskier and more labor-intensive than others, so we didn’t raise fees across the board. In fact, our margins have been smaller on many less risky projects.I identified structural problems as well. Over the preceding years a bureaucracy had developed. That’s not surprising: The UN loves bureaucracy. But I believed that the rules and regulations at UNOPS were too complex and overlapping for efficiency, so I set the team a challenge: Replace them. More than 1,200 pages of rules went into the trash, and we began rewriting our operating principles, which I modeled after the processes developed to manage Storebrand, the largest Norwegian private pension provider.

Dealing with Complexity

To understand how we’ve changed, one needs to appreciate the complexity of the work UNOPS is often asked to take on. Here’s a typical example: The UN High Commissioner for Refugees came to the agency in 2012 to discuss the situation in Syria. Refugees were entering neighboring countries in very large numbers, and the UN had to help build camps for them. Such camps need schools. They need ambulances and medical services. They need security, to prevent crime within newly formed communities that may contain more than 100,000 people. We offered support through a number of projects. I’m especially proud of what we’ve done to reduce violence by modeling community policing and installing solar streetlights around sanitation facilities so that women can use bathrooms with less fear of being attacked.

Many of our projects carry risks beyond what a private company would be comfortable with. When the UN’s Organisation for the Prohibition of Chemical Weapons was tasked with destroying chemical weapons along with a dozen facilities that produced them in Syria, it turned to us. When the World Bank wanted to initiate a $200 million effort to rebuild basic infrastructure in Yemen, UNOPS got the call. The situation in Yemen is still very difficult, but we’re making progress in preventing cholera and other diseases and in helping the country develop its energy infrastructure.

UNOPS was once known as the Eleventh-Hour Agency.

In the private sector, the competitor with the best price typically gets the job. Things are not always so straightforward in the public sector. Politics is a major factor. There are times when we believe that UNOPS would add the greatest value to a particular project, but we need to tread very carefully, because other players (another UN agency, a government) may believe that it should be assigned to a specific implementer for political reasons. Some days I spend most of my time patiently advocating for a level playing field when clients evaluate bids. UNOPS is fiercely competitive, and when the bidding process is fair, we thrive.

To deal with all this complexity, I introduced better risk management to improve decision making and accountability. I began giving frontline personnel a voice in decisions. I asked colleagues to do more monitoring and documenting of past projects, to learn what worked or did not and why. I emphasized listening to dissenting opinions and started to challenge some classic justifications organizations use for pursuing a project that may not make financial sense.

Consider so-called door openers. Sometimes people argue that a dicey project is a way to get a foot in the door with a new client, so it should be seen as an investment in potential future revenue. UNOPS loved door openers. I understand the logic, but today we look much harder at whether the potential is really there. It may be fun to do a hundred smaller projects, but if they’re mostly operating in the red, where will that get us? I also created a small committee—governed by a flexible rule book—that has to sign off on more-complex projects and create risk-mitigation strategies and approaches. Despite these new hurdles, our appetite sometimes remains too big for our stomach.

I’ve had to grapple a lot with the issue of cost control. UNOPS’s finances have strengthened, but some on our team believe that we’re “awash in cash” and should go on a spending spree. I profoundly disagree. I’ve seen companies go into a downward spiral (or even out of business altogether) when they stop worrying about the bottom line on a daily basis. At every opportunity, I reinforce the message that our current solid performance is no guarantee of future results—and having come this far, we don’t want UNOPS to be relegated to the history books.

Nonetheless, we’ve been able to grow at a time when the UN budget has been fairly flat, because governments have come to see us as the preferred partner. Work for governments, which is growing dramatically, now represents 37% of our revenue. Work with UN organizations is stable in dollar terms but has decreased from about 60% of revenue in 2014 to 32% in 2017. Overall, since 2014 our annual revenue has grown from $1.45 billion to $1.85 billion. Our operational reserves have nearly doubled, and we’re investing in digitization and new IT systems. We’re also embarking on our most ambitious initiative to date: social impact investing.

Embracing Innovation

This next stage of our growth—in which we’ll partner with the private sector, share risks, and go to market together—has a lot of potential, but it’s controversial. Instead of just winning contracts, we’re using our cash to invest in assets and put skin in the game.

Our first major project is in Mexico, where a 22-megawatt wind turbine facility is generating electricity and working well. The facility was built five years ago, and the original investors had a fixed timeline for exit. The investment fund came to an end just as some local companies began missing payments for their electricity. The credit risk scared off new investors.

UNOPS was invited in. We worked with the customers and found some new ones to reduce the credit exposure. We also worked with banks to renegotiate debt. Finally, we stepped in with a $9 million equity investment. UNOPS is not in this to make a lot of money for itself. Rather, we want to ensure that deals are socially responsible, environmentally beneficial, and contributing to national development goals. We worked with a multinational accounting firm to create a scorecard for social sustainability, and we pursue projects only if the score is high enough.

A few days after closing on the Mexico project, we signed agreements with the presidents of Kenya and Ghana to structure deals with investors to develop 100,000 housing units worth close to $5 billion in each country. We now have a strong pipeline of deals in renewable energy, affordable housing, and health infrastructure. In each one we aim to have an operational role—we won’t be passive investors. That makes UNOPS a major player in infrastructure—arguably the most important sector for developing countries.Doing a deal like this wasn’t easy. We had to fight multiple naysayers, both internally and externally. Some colleagues within UNOPS were against entering partnerships with “mercenaries” from the private sector. It was also hugely controversial on the outside, given that no other UN entity has ever been involved in an investable deal of this nature, let alone invested itself. I used all my persuasion skills to engage those who were against or indifferent to the deal and bring them to our side—not just with facts and figures but with an emotional appeal. I’m convinced that achieving sustainable development goals by 2030 (which is part of an overall UN goal) would be impossible without a major catalytic role by the private sector, so I decided to take the smart risk.

More than most private-sector companies, we help clients think long-term. For instance, we use data and a proprietary model to help governments better understand what to build, when, and how—and even when not to build—to create a strategy for infrastructure needs over the next 30 or 40 years. We’ve started working on this in Saint Lucia and Curaçao—small islands in the Caribbean. Instead of talking about ad hoc projects, we can give the respective governments a road map for what they should be building over decades.

UNOPS will always be about quality implementation. And we’ll continue doing business in places where many organizations hesitate to go—regions where governments are fragile and UN peacekeepers are required. Even as we move into investing in bankable projects, we won’t neglect our core. We will, however, pursue our goals with more discipline, risk management, and cost consciousness than we have in the past—and we’ll keep saying no to projects that don’t make sense. Those things aren’t easy for an organization like ours, but they’re essential if we want to keep helping countries develop for many years to come.

Source: Harvard Business Review

Original Text: https://hbr.org/2019/05/the-executive-director-of-a-un-agency-on-running-it-like-a-business

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